Latvia Bond Auction Fails; What It Could Mean For Other Debtor Nations

Lavtivian Government had a failed bond auction yesterday. They had no takers for their short term debt. This is the ultimate end of the road for the Debtor nations. It’s a stark date with destiny that, as a nation of debt, you’ve reached the end of the line. When you can’t sell your bonds any longer it’s game over. That means that your currency is seriously overvalued relative to the rest of the world. You can no longer pay your debts. The world will shut you off. You’re nothing but a bad debt.

It could be this type of crisis that starts in the smaller countries in Eastern Europe that spreads to the Eurozone. The US dollar seems to be declining, but if we continue to see failed auctions around the world, then China may be less inclined to want to own other currencies, such as the EURO. The USD may still retain its’ reserve currency status.

Per WSJ :

Latvia’s financial crisis escalated after a government auction to sell 50 million lats ($100.8 million) of short-term debt failed to attract any bidders, adding more pressure on the government to devalue its currency.

The failure hit the prices of other Eastern European currencies and pulled down stock prices of Swedish banks, which are heavily exposed to the Baltic region. It also boosted the U.S. dollar, which had been weakening recently against the euro and other currencies.

Latvian Prime Minister Valdis Dombrovskis avoided questions about a devaluation in an interview on CNBC after European markets closed, but said the country needs to reach a quick agreement with the International Monetary Fund and the European Union to secure the second portion of its €7.5 billion ($10.7 billion) loan, granted in December in the aftermath of a previous failed auction and pressure on the lat.

Mr. Dombrovskis said an agreement needs to be reached by early next week.

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